Private companies have been complaining that the government apparently failed to anticipate the challenges manufacturing units would face after it ended the policy of allocating subsidized currency for import.
On May 10 the government officially put an end to forex subsidies at the rate of 42,000 rials per dollar, locally known as preferential foreign currency, to importers of food and essential goods, namely corn, soymeal, unprocessed oil, oilseeds and barley, in addition to wheat, flour and medicine.
Most private businesses welcomed the move but criticized the government for “ignoring the challenges manufactures would face” in the aftermath.
Hassan Forouzan Fard, a member of Iran Chamber of Commerce, Industries, Mines and Agriculture (ICCIMA) said that manufactures are grappling with lack of liquidity, declining demand and high production costs.
“After scrapping the preferential currency, the government should create funding mechanisms via banks at least in the short-term to help producers meet their funding needs,” he was quoted as saying by the ICCIMA website.
Ali Asghar Zebardast, head of the Hamedan Chamber of Commerce, Industries, Mines and Agriculture voiced similar concerns, asking the government to assist manufacturers in need of funds to continue.
“Manufacturing units are facing rise in production costs after the forex subsidies ended and the government is expected to help them,” he demanded.
Businesspeople argue that after the subsidy policy is terminated in its entirety, they will need extra infusions of cash for importing raw material due to the rise in prices of production inputs because of the huge gap between subsidized and the open market forex rates.
They want the government to reconsider measures to compensate the looming liquidity crunch in the coming months.
Earlier, Saeedeh Mashayekhi, a guild official in the poultry industry, said the elimination of currency subsidies will increase the poultry farmers need for capital by at least six times (600%).
The subsidized currency was sourced from oil export revenue and used only for importing basic necessities to avoid price hikes in food and raw materials.
While successive governments have routinely subsidized food imports, cheap currency in its current form was offered after the steep rise in forex rates in the spring of 2018 when the government set the dollar at fixed rate of 42,000 rials and cut the list of goods eligible for subsidized currency to a few essential goods.
The government said it would instead pay the subsidy in cash to the needy. The Central Bank of Iran deposited 3–4 million rials ($10.5-14) in cash subsidies for the first to ninth income deciles to make up for the removal of the chaotic subsidy policy that saw billions of dollars spent on imports of essential goods with the aim of keeping prices low but failed to achieve the intended goals.
